33.3.1 North American Free Trade Association (NAFTA)

North American Free Trade Agreement (NAFTA) / United States-Mexico-Canada Agreement (USMCA)

Establishment

Objectives

• Trade Enhancement: NAFTA aimed to increase trade among the three member countries, integrate Mexico within the developed high-wage economies of North America (the U.S. and Canada), and discourage illegal migration by fostering economic growth in Mexico. Another objective was to integrate manufacturing within the region to boost overall productivity.
• Political Context: The agreement received bipartisan support in the U.S., with Presidents Reagan, Bush, and Clinton all advocating for it. However, it was criticized and rejected by President Trump, who later replaced it with the United States-Mexico-Canada Agreement (USMCA) in 2020.

Economic and Trade Integration

• Limited Political Integration: Unlike the European Union, NAFTA did not seek deeper political integration among its members, focusing primarily on economic functionalism. Even in trade, it was not a fully free trade area like the EU but still managed to significantly reduce barriers.
• Dispute Resolution Mechanism: NAFTA included a structured dispute resolution mechanism designed to address grievances or disputes between the member states, helping maintain stability and fairness in trade relationships.
• Side Agreements: Several side agreements were established alongside NAFTA to address labour laws and environmental concerns, ensuring that the trade benefits did not come at the cost of workers' rights or environmental degradation.

Impact and Outcomes

• Trade Growth: Under NAFTA, regional trade grew substantially, from $290 billion in 1994 to $1.1 trillion by 2016. U.S. trade with Mexico and Canada tripled during this period, significantly boosting economic ties between the three countries.
• Competitiveness and Productivity: The agreement increased the region's competitiveness, particularly against global competitors like China, and enhanced regional productivity by integrating manufacturing processes across borders. For example, Canada's agricultural yield tripled under NAFTA.
• Job Losses and Market Competition: Despite the economic gains, NAFTA also had some negative effects, particularly in the U.S., where it is estimated that 15,000 jobs were lost per year due to increased competition and market share losses in some sectors.
• Mexican Workforce Exploitation: NAFTA faced criticism for potentially exploiting Mexico's cheaper workforce, especially in border areas, where lower labor costs led to cheaper goods for the U.S. market. The Mexican president responded to these accusations by emphasizing the importance of exporting goods rather than people, reflecting the broader goal of economic integration to curb illegal migration.

Transition to USMCA

Conclusion